Ernst: Huge flood rate increase -- and possible relief

Published: Friday, December 6, 2013 at 11:37 p.m.

Last Modified: Friday, December 6, 2013 at 11:37 p.m.

ENGLEWOOD - Kenn Piotrowski called the other day with a whopper of a story.

He knew I've been writing about the changes to the National Flood Insurance Program and the eye-opening bills some residents and business owners have received. The program is trying to reverse a $24 billion deficit by raising rates on properties built before 1975 in flood-vulnerable areas.

Piotrowski just got the flood insurance bill for his two-bedroom, two-bath, 1,800-square-foot home, built on a canal in Englewood in 1960.

Last year, he paid $3,877.

This year, the bill is $48,640.

Yes, you read that correctly.

I've seen the paperwork and listened to Piotrowski's story about trying to get an explanation from his insurance company, which simply passes along the rates. “All anyone can tell us is, 'It's the law; talk to your congressman,' ” he said.

Piotrowski and his wife, Becca, bought their home in October 2012, several months after the cutoff established by the federal Biggert-Waters Flood Insurance Reform Act. Any primary residences bought after July 2012, along with businesses and second homes, are subject to immediate and full rate increases from FEMA's insurance program.

Primary residences purchased before then get only a slight reprieve: They will see their increases starting Oct. 1, 2014, and they will be phased in instead of going to the full new rate.

If nothing changes, Piotrowski is stuck paying $48,000 a year in flood insurance for a home that the Sarasota County Property Appraiser's Office values at $97,000. The couple paid $333,000 for the property, but most of the value lies in the land, not the house.

Something seems wrong with this picture, which is why the governors of Florida, Alabama, Louisiana, South Carolina, Massachusetts and Mississippi have filed for an injunction to prevent implementation of Biggert-Waters until further study can determine a more equitable way to achieve its objective.

The Herald-Tribune has chronicled much of this controversy, in part because 30,000 properties in its readership area fall into the category defined by the federal insurers as high-risk.

But here's something new:

In a search for relief, Piotrowski discovered The Flood Insurance Agency, based in Gainesville. It is offering flood insurance at rates far cheaper than the government's. Piotrowski, for instance, could pay $12,805 or less for coverage identical to what he is buying from the government for $48,640.

The company's CEO, Evan Hecht, said he's been selling the government's policies for decades, and was twice nominated for FEMA agent of the year. In late October, he started handling the so-called high-risk properties.

Known as surplus lines coverage, the policies are not fully regulated by the state, although Hecht's offerings happen to be backed by underwriters at Lloyd's of London, an insurer that has been in business for more than 300 years.

“Do you have any idea of the panic that's going on in my world?” Hecht asks. “I have an obligation to make sure people aren't panicking.”

OK, he's making a little money off this, too.

One might wonder how he can profit from insuring a category of property that the federal insurance program claims has put it in debt.

Maybe it's because as a class, the homes and businesses built before 1975, when stricter elevation rules were enacted, aren't quite the risk they've been made out to be.

Hecht points to a study released in July by the Government Accountability Office. From 1978 through 2011, the government collected $26.3 billion in premiums from the owners of older properties and paid out $24.1 billion in claims. During the same time frame, newer properties accounted for $33.7 billion in premiums and $28.5 billion in claims.

In other words, the premiums/claims ratios for the two classes of properties are not dramatically different, leading to the assumption that it might be fairer for the government to spread out the rate increases, rather than assigning them primarily to older structures.

The state of Florida made a similar argument in a “friend of the court” brief filed as part of the effort through a U.S. district court in Mississippi to delay implementation of the higher rates.

Among other complaints, the brief characterizes FEMA's rate-setting as “arbitrary and capricious” because it ignores historic evidence.

“Insuring against loss inevitably requires predictions of future events, the accuracy of which depends upon the quality of information used. However, the most effective way to test a prediction is by comparison to actual events,” the document states.

From 1978 to 2012, for every dollar Floridians paid in premiums, FEMA paid out 57.9 cents for losses, showing that even if property owners were subsidized by affordable rates, the premiums still more than covered all claims and overhead.

On a final note, the Wall Street Journal last week published an editorial extolling the new rates as a cure to the practice of subsidizing the “affluent beachcombers” who build “mansions near the shore.”

Whoever wrote that editorial has never been to Englewood to visit with the owners of the $97,000 mansions who are being hit the hardest by the change in the rules.

<p><em>ENGLEWOOD</em> - Kenn Piotrowski called the other day with a whopper of a story. </p><p>He knew I've been writing about the changes to the National Flood Insurance Program and the eye-opening bills some residents and business owners have received. The program is trying to reverse a $24 billion deficit by raising rates on properties built before 1975 in flood-vulnerable areas.</p><p>Piotrowski just got the flood insurance bill for his two-bedroom, two-bath, 1,800-square-foot home, built on a canal in Englewood in 1960. </p><p>Last year, he paid $3,877. </p><p>This year, the bill is $48,640.</p><p>Yes, you read that correctly.</p><p>I've seen the paperwork and listened to Piotrowski's story about trying to get an explanation from his insurance company, which simply passes along the rates. “All anyone can tell us is, 'It's the law; talk to your congressman,' ” he said.</p><p>Piotrowski and his wife, Becca, bought their home in October 2012, several months after the cutoff established by the federal Biggert-Waters Flood Insurance Reform Act. Any primary residences bought after July 2012, along with businesses and second homes, are subject to immediate and full rate increases from FEMA's insurance program. </p><p>Primary residences purchased before then get only a slight reprieve: They will see their increases starting Oct. 1, 2014, and they will be phased in instead of going to the full new rate.</p><p>If nothing changes, Piotrowski is stuck paying $48,000 a year in flood insurance for a home that the Sarasota County Property Appraiser's Office values at $97,000. The couple paid $333,000 for the property, but most of the value lies in the land, not the house.</p><p>Something seems wrong with this picture, which is why the governors of Florida, Alabama, Louisiana, South Carolina, Massachusetts and Mississippi have filed for an injunction to prevent implementation of Biggert-Waters until further study can determine a more equitable way to achieve its objective.</p><p>The Herald-Tribune has chronicled much of this controversy, in part because 30,000 properties in its readership area fall into the category defined by the federal insurers as high-risk.</p><p>But here's something new:</p><p>In a search for relief, Piotrowski discovered The Flood Insurance Agency, based in Gainesville. It is offering flood insurance at rates far cheaper than the government's. Piotrowski, for instance, could pay $12,805 or less for coverage identical to what he is buying from the government for $48,640. </p><p>The company's CEO, Evan Hecht, said he's been selling the government's policies for decades, and was twice nominated for FEMA agent of the year. In late October, he started handling the so-called high-risk properties.</p><p>Known as surplus lines coverage, the policies are not fully regulated by the state, although Hecht's offerings happen to be backed by underwriters at Lloyd's of London, an insurer that has been in business for more than 300 years.</p><p>“Do you have any idea of the panic that's going on in my world?” Hecht asks. “I have an obligation to make sure people aren't panicking.”</p><p>OK, he's making a little money off this, too.</p><p>One might wonder how he can profit from insuring a category of property that the federal insurance program claims has put it in debt.</p><p>Maybe it's because as a class, the homes and businesses built before 1975, when stricter elevation rules were enacted, aren't quite the risk they've been made out to be.</p><p>Hecht points to a study released in July by the Government Accountability Office. From 1978 through 2011, the government collected $26.3 billion in premiums from the owners of older properties and paid out $24.1 billion in claims. During the same time frame, newer properties accounted for $33.7 billion in premiums and $28.5 billion in claims.</p><p>In other words, the premiums/claims ratios for the two classes of properties are not dramatically different, leading to the assumption that it might be fairer for the government to spread out the rate increases, rather than assigning them primarily to older structures.</p><p>The state of Florida made a similar argument in a “friend of the court” brief filed as part of the effort through a U.S. district court in Mississippi to delay implementation of the higher rates.</p><p>Among other complaints, the brief characterizes FEMA's rate-setting as “arbitrary and capricious” because it ignores historic evidence.</p><p>“Insuring against loss inevitably requires predictions of future events, the accuracy of which depends upon the quality of information used. However, the most effective way to test a prediction is by comparison to actual events,” the document states.</p><p>From 1978 to 2012, for every dollar Floridians paid in premiums, FEMA paid out 57.9 cents for losses, showing that even if property owners were subsidized by affordable rates, the premiums still more than covered all claims and overhead.</p><p>On a final note, the Wall Street Journal last week published an editorial extolling the new rates as a cure to the practice of subsidizing the “affluent beachcombers” who build “mansions near the shore.”</p><p>Whoever wrote that editorial has never been to Englewood to visit with the owners of the $97,000 mansions who are being hit the hardest by the change in the rules.</p>